EirGrid has published the provisional results of the annual capacity auction for the Single Electricity Market. The auction, which was first introduced last year, is a key element of the market, designed to deliver wholesale electricity at the least possible cost.
Of the 105 generating units that qualified to take part in the auction, 95 were successful. A total of €345 million of capacity payments will be paid during the period October 2019 to September 2020, up from €333 million in the previous year.
Prior to the introduction of the auction process last year, annual capacity payments averaged in the region of €550 million.
This year’s auction has secured a total of 8266 megawatts (MW) of capacity, up from 7774 MW last year. The additional capacity is required to meet an increase in demand triggered by economic growth.
Capacity payments are paid to generators to ensure they are available to meet the demand for electricity, especially at peak times. Successful bidders in the capacity auction will be paid during the year for each MW of capacity they sold to the market in the auction.
Rodney Doyle, Market Operations Director at EirGrid Group, said: “This is a competitive auction where efficient and low-cost capacity is most likely to be successful. This year’s auction has ensured that we have sufficient capacity to provide a secure electricity supply through until the end of September 2020. Importantly, the auction also ensures that consumers only pay for generation that is actually required.
“The auction is a rigorous, monitored process. We are confident that the generators who have been successful in this capacity auction will provide safe and secure generation at the lowest possible cost.”
The auction was designed by the electricity regulators in Northern Ireland and Ireland to ensure sufficient capacity is secured to meet demand across the island at all times.
The capacity required from the auction took into account peak demand, security of supply, as well as the reliability and performance of generators, and a range of demand forecasts and interconnection. It also took into account specific locational requirements for the Dublin area and for Northern Ireland.
A total of 132 MW of new capacity was successful in the auction, mostly from Demand Side Units. These are large energy users who agree to reduce electricity use upon instruction. In return, they receive capacity payments for the demand reduction they make available.
The auction clearing price was €40,646 per MW per year (down from €41,800 per MW last year). A small number of generators with offers greater than the clearing price were successful in order to satisfy specific requirements for the Dublin area and Northern Ireland.
Gas turbine generation makes up 59% of the capacity secured through the auction. Steam turbines represent 25%, Interconnectors and Demand Side Units are both 5%, and there is a small amount of pumped storage, hydro and wind power.
Mr. Doyle added: “We have worked with generators to prepare and help them to participate in the auction. I am pleased that the auction has delivered the capacity we need to secure our electricity at a competitive price.”
The full results are available at https://www.sem-o.com/documents/general-publications/T-1-2019-2020-Provisional-Capacity-Auction-Results-Report.pdf